Economics Unit 2 Edexcel - Managing the UK economy Tuesday 19th May 2015 (PM)

AJC1997

What are all of the conflicts between macroeconomic objectives + explain them? Thanksss

Increasing economic growth > could lead to a high level inflation depending on the level of spare capacity in the economy and whether the growth is sustainable.

economic growth and an increase in Real GDP will also worsen the current account deficit as UK exports will become less competitive. As consumer spending increases, the level of imports will rise - the UK has a high marginal propensity to Import.

However economic growth will help: Reduce the level of unemployment and better the governments Budget deficit as they receive more in receipts from tax/pay less in benefits.

However, economic growth doesn't always have to cause inflation and a worsening of the current account deficit. If Aggregate supply increases at the same rate as Aggregate demand, growth can be sustainable and non-inflationary. In some countries, Like China for example, growth is export led and they have a current account surplus.

The Phillips curve is also useful to show the trade off between unemployment and inflation - A rise in AD leads to higher growth which causes inflation, but high levels of inflation = low levels on unemployment.

then you can flip these arguments around etc

Reply 161

IDK Tuition

2

Original post by falloutboyyy

Hey Tom,

Great vids btw :smile:

What sort of last minute things should I revise and practice? Like any example q's u have?

Posted from TSR Mobile

An exercise I do with all of my students is going through papers and thinking about exactly how you're going to pick up your marks:
-which definitions shall I include?
-which diagrams shall I include?
-which bits of the extracts shall I refer to?

-what are my explanation points going to be?
-what are my evaluation points going to be?
-how many explanation/evaluation points do I need?

Then refer to the mark scheme to see how you fared!

Hope this helps, best of luck!

Tom (IDK-tuition.com, free online economics videos and resources)

Reply 162

falloutboyyy

3

Original post by IDK Tuition

An exercise I do with all of my students is going through papers and thinking about exactly how you're going to pick up your marks:
-which definitions shall I include?
-which diagrams shall I include?
-which bits of the extracts shall I refer to?

-what are my explanation points going to be?
-what are my evaluation points going to be?
-how many explanation/evaluation points do I need?

Then refer to the mark scheme to see how you fared!

Hope this helps, best of luck!

Tom (IDK-tuition.com, free online economics videos and resources)

Cheers, Tom

Yep I think I'm just going to literally plan out the q's as I don't have the time to write them all and don't want to tire myself out.

I have three exams tomoz

Economics I have a five minute break before so I don't get to leave the hall between my physics and econ oh lord

Posted from TSR Mobile

Reply 163

icecreamcake

15

Original post by IDK Tuition

An exercise I do with all of my students is going through papers and thinking about exactly how you're going to pick up your marks:
-which definitions shall I include?
-which diagrams shall I include?
-which bits of the extracts shall I refer to?

-what are my explanation points going to be?
-what are my evaluation points going to be?
-how many explanation/evaluation points do I need?

Then refer to the mark scheme to see how you fared!

Hope this helps, best of luck!

Tom (IDK-tuition.com, free online economics videos and resources)

Hi Tom,

I don't understand why inflation might lead to a depreciation of the exchange rate - would you please explain it to me? Thanks :smile:

Posted from TSR Mobile

Reply 164

AJC1997

2

Original post by icecreamcake

Hi Tom,

I don't understand why inflation might lead to a depreciation of the exchange rate - would you please explain it to me? Thanks :smile:

Posted from TSR Mobile

I know you didn't ask me But I think I can answer this:

Inflation is a relative rise in the price level therefore UK Exports will become less competitive as they are more expensive in relation to other countries, ceteris paribus.

As a result Demand for UK Exports will fall - so there will be less demand for the Pound sterling.

Also at the same time, Imports will become cheaper for domestic UK consumers and will see it more attractive to purchase Imports rather than buying domestically, where the prices are high due to inflation.

As a result they will supply sterling to buy Euros and Euro imports, so the increase in supply lowers the value of the sterling.

Also if Firms speculate that a soon to be implemented policy could cause inflation, they may sell of their currency, causing it to fall in anticipation.

Hopefully it makes sense :smile:

Reply 165

Emmak26

1

Original post by IDK Tuition

Hi Emmak,

You shouldn't really need to memorise specifics- most of these can be inferred from the AD-AS graph e.g if AD shifts to the right, then real GDP goes up and unemployment goes down. Inflation will also go up, depending on which section of the AS curve we're at.

Tom (IDK-tuition.com, free online economics videos and resources)

oh ok, thank you very much!

Reply 166

irMike

5

Original post by IDK Tuition

An exercise I do with all of my students is going through papers and thinking about exactly how you're going to pick up your marks:
-which definitions shall I include?
-which diagrams shall I include?
-which bits of the extracts shall I refer to?

-what are my explanation points going to be?
-what are my evaluation points going to be?
-how many explanation/evaluation points do I need?

Then refer to the mark scheme to see how you fared!

Hope this helps, best of luck!

Tom (IDK-tuition.com, free online economics videos and resources)

Hey Tom, can you help me out with something. I've been doing what you've suggested this morning, and found that the mark scheme's structure for different 30 markers is very different. For example:

'Evaluate the Economics effects of reducing the budget deficit'

For this, the mark scheme implies that your KAA Points must be the postive and/or negative effects, and the evaluation must be a discussion of whether or not that effect is actually likely to occur.

I got this wrong, because from practicing other 30 markers, I thought it would be ok to make my KAA points as the Positive effects (e.g. Reduces AD, controlling Inflation) and the Evaluation would be the negative effects of reducing the deficit (E.g. Slow/Negative economic growth.)

But the Mark Scheme had no examples of these kind of conflicts as part of the Evaluation marks.

How can I know when it's alright to structure my answer with the Positives as KAA, and negatives as Evaluation? Because that doesn't seem to be the case all of the time.

Reply 167

Emmak26

1

how does inflation and equilibrium on BOP conflict?

Reply 168

Emmak26

1

oh wait for conflict between inflation and equilibrium on BOP would you say that when inflation rises, goods in the UK become more expensive which means that exports would decrease and also imports would increase as people would goods for cheaper abroad (as it is more expensive domestically) and therefore this causes BOP deficit in the current account? Is that right?

Reply 169

MarkGavin

1

Hello all,
My name is Mark Gavin and I am currently the Economics head examiner at Edexcel. I was recently notified I am soon to be laid off so I decided to get my own back and give all of you a treat! I shall give you the 30 markers of the two options.
1. Assess the impact on unemployment of an increase in the tax rate on earnings above £150,000
2. Evaluate the consequences on economic growth of a deflationary spiral
The mark scheme is tough this year as well so you really need to know your stuff!

Reply 170

irMike

5

Original post by Emmak26

how does inflation and equilibrium on BOP conflict?

It doesn't. Controlling Inflation means to keep it low, at roughly 2%. This will actually help the BOP in theory, because It will make our exports appear cheaper to foreign buyers, so exports increased, whilst our Imports will fall, because locally sourced goods may seem cheaper.

Though, you could perhaps argue that in the short term, Imports will remain roughly the same, because it takes time to find cheaper substitutes within the UK, and many firms have contracts with foreign suppliers. Same goes for exports, In the short term, they may not increase for the same reason.

But I don't think there's really any conflict there, they compliment eachother. You probably could find a small conflict, but I wouldn't mention it in your exam.

Reply 171

AJC1997

2

Original post by MarkGavin

Hello all,
My name is Mark Gavin and I am currently the Economics head examiner at Edexcel. I was recently notified I am soon to be laid off so I decided to get my own back and give all of you a treat! I shall give you the 30 markers of the two options.
1. Assess the impact on unemployment of an increase in the tax rate on earnings above £150,000
2. Evaluate the consequences on economic growth of a deflationary spiral
The mark scheme is tough this year as well so you really need to know your stuff!

does one of the questions also happen to be: 'Evaluate the effects of a negative output gap on the marginal propensity to consume for earners of over £300,000 a year in South East Asia, on the UK market for fast food?'

Kappa.

Reply 172

irMike

5

Original post by Emmak26

oh wait for conflict between inflation and equilibrium on BOP would you say that when inflation rises, goods in the UK become more expensive which means that exports would decrease and also imports would increase as people would goods for cheaper abroad (as it is more expensive domestically) and therefore this causes BOP deficit in the current account? Is that right?

That's right, yeah.

But that's not a conflict, because the actual inflation objective is to keep it low. So don't say that if you're asked for a conflict between objectives, but you can say it if it asks for the effect of high inflation, or for the drawbacks of Economic growth.

Reply 173

jshep000

15

What are some simple evaluation points you can generally use for all questions in unit 2? Like in unit 1 it was elasticity, opportunity cost, magnitude and time lag.

Reply 174

Emmak26

1

Original post by irMike

That's right, yeah.

But that's not a conflict, because the actual inflation objective is to keep it low. So don't say that if you're asked for a conflict between objectives, but you can say it if it asks for the effect of high inflation, or for the drawbacks of Economic growth.

oh okk, thank you soo much! so would you say that i'm better off talking about :
inflation and unemployment
economic growth and the balance of payment on the current account
increased employment and the sustainable environment
economic growth and income redistribution

these four conflicts if there is a question on conflicts between objectives?

Reply 175

AJC1997

2

Original post by jshep000

What are some simple evaluation points you can generally use for all questions in unit 2? Like in unit 1 it was elasticity, opportunity cost, magnitude and time lag.

Most are still applicable but:

-Time lag (especially for supply side policies)
-Depends on the other components of aggregate demand
-Depends on the overall level of confidence in the economy
-The government may have poor information i.e. for privatisation which could lead to government failure
-Depends on the level of spare capacity in the economy (for AD/Inflation related things)
-Elasticity can also be used for Imports/Exports for example
-Opportunity cost is still relevant, government expenditure for example always involves an opportunity cost.

Theres probably more

Reply 176

irMike

5

Original post by Emmak26

oh okk, thank you soo much! so would you say that i'm better off talking about :
inflation and unemployment
economic growth and the balance of payment on the current account
increased employment and the sustainable environment
economic growth and income redistribution

these four conflicts if there is a question on conflicts between objectives?

I would say you should talk about Economic Growth v Sustainable environment rather than Employment v Environment, That'd be easier because you can talk about pollution from factories, and use of finite resources. The rest are fine, yeah

I'd also say Economic Growth v Inflation is potentially the easiest one to talk about, because it only requires a simple AS/AD diagram to demonstrate it, and you can talk about demand-pull inflation.

Hope that helps

Reply 177

MarkGavin

1

Original post by AJC1997

does one of the questions also happen to be: 'Evaluate the effects of a negative output gap on the marginal propensity to consume for earners of over £300,000 a year in South East Asia, on the UK market for fast food?'

Kappa.

Of course not! Don't be silly.

Reply 178

agg98

for an A and a B
What are the average grade boundaries

Reply 179

badaman

2

Original post by Emmak26

oh okk, thank you soo much! so would you say that i'm better off talking about :
inflation and unemployment
economic growth and the balance of payment on the current account
increased employment and the sustainable environment
economic growth and income redistribution

these four conflicts if there is a question on conflicts between objectives?

Yeah! Do you mind explaining Inflation and Unemployment? Thanks! x

Economics Unit 2 Edexcel - Managing the UK economy Tuesday 19th May 2015 (PM)

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